Case Law Details
Ara India Llp Vs National Faceless Assessment Centre Nafac (Allahabad High Court)
The case of Ara India LLP vs. National Faceless Assessment Centre (NAFAC), as heard by the Allahabad High Court, revolves around the issue of denying the opportunity for a personal hearing in a scrutiny assessment order passed by NAFAC under Section 143(3) read with Section 144B of the Income Tax Act for the Assessment Year 2022-23.
The petitioner sought relief in the form of quashing the ex parte scrutiny assessment order dated 22.03.2024, contending that despite their request for a personal hearing, the opportunity was denied, and the assessment order was passed prematurely.
Upon reviewing the case, the court noted that the denial of the opportunity for a personal hearing was indeed a valid concern. Referring to a previous case, the court emphasized the mandatory nature of providing a personal hearing if requested by the assessee during the assessment proceedings. It clarified that the provision for a personal hearing should not be considered optional at the discretion of the Assessing Officer (AO). Rather, it should be seen as a fundamental aspect of the assessment process, ensuring a fair and reasoned conclusion.
The court further elaborated on the importance of oral hearings in assessment proceedings, particularly in cases involving disputed facts and laws. It highlighted that written submissions alone might not sufficiently clarify the intricacies of a case, as interpretations can vary, and written communication may not always convey the intended message effectively. Thus, oral hearings are essential for effective discussion and reaching a reasoned conclusion, ensuring justice and maintaining trust in the adjudicatory authorities.
Additionally, the court pointed out that if an assessee is to be taxed at a rate higher than what was initially declared, they deserve to know the reasons behind such a decision. Ex parte opinions without recorded reasons can undermine the assessee’s ability to understand and respond to the assessment, limiting their recourse to appeal.
Moreover, the court noted a recent amendment to the Income Tax Act, which eliminated the authority’s power to remit a defective assessment order back to the AO for reconsideration. This underscored the significance of providing a fair opportunity for a personal hearing during the initial assessment stage, as denying this could severely restrict the appellate authority’s ability to address issues effectively.
In conclusion, the court allowed the writ petition, setting aside the ex parte assessment order and directing the petitioner to submit their reply within a specified period. It outlined that if the AO intends to accept the petitioner’s explanation entirely, they may proceed without further hearing. However, if the AO plans to reject the explanation, they must provide a date for a hearing with sufficient notice. The petitioner agreed to participate in the hearing as required, ensuring that the assessment proceedings would proceed in accordance with the law.
This judgment underscores the importance of procedural fairness and the right to be heard in assessment proceedings, highlighting the court’s commitment to upholding principles of natural justice in taxation matters.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Shubham Agrawal, learned counsel for the petitioner and Sri Manu Ghildyal, learned counsel for the revenue.
2. Present writ petition has been filed for the following relief :
“(i) Issue a writ, order or direction in the nature of certiorari quashing the impugned ex parte scrutiny assessment order dated 22.03.2024 (Annexure – 1 to the writ petition) passed by respondent (NAFAC) u/s 143(3) read with Section 144B of the Income Tax Act for the Assessment Year 2022 23.”
3. On 29.04.2024, we had passed the below quoted order :
“1. Submission is, first notice was issued on 12.03.2024 fixing the date 14.03.2024. Part compliance was made on the date fixed and further reply was filed on 16.03.2024 with specific request to grant opportunity of personal hearing. Without considering that request, the impugned assessment order has been passed on 22.03.2024 by the National Faceless Assessment Centre (NaFAC). The reason given to deny the opportunity of personal hearing is described as fallacious inasmuch as undoubtedly the reply furnished was pending consideration by the Assessing Authority, when opportunity of personal hearing was sought.
2. Shri Manu Ghildyal, learned counsel for the revenue prays for and is granted three days’ time to complete his instructions.
3. Put up as fresh on 6.5.2024.”
4. Today, Sri Ghildyal, learned counsel for the revenue could not dispute the correctness of the facts noted in the order dated 26.04.2024 with respect to denial of opportunity of hearing. In Satish Kumar Bansal Huf Vs. National Faceless Assessment Centre Nafac And Another; Neutral Citation No. – 2024:AHC:73541-DB, we have observed as below :
“5. Having heard learned counsel for the parties and having perused the record, Section 144B of the Act [by virtue of sub-Section 6(vii) and (viii)] mandates opportunity of hearing to be given to the petitioner upon show-cause notice issued to show-cause why assessment may not be completed as proposed. Further, if at the time of submission of his reply to the show-cause notice, the assessee “requests” for opportunity of personal hearing, the same is necessary to be provided in terms of Section 144B(6)(viii). Reading of the two provisions does not suggest that grant of opportunity of personal hearing is optional at the discretion of the Assessing Officer. On the contrary in the context of rights in dispute before the Assessing Officer and under the Scheme of the Act, providing for opportunity of personal hearing appears to be the Rule and its waiver an exception to be exercised by the assessee. Wherever the assessee makes a specific request in terms of Section 144B(vii), that would be enforced on the Assessing Authority through National Faceless Assessment Centre in accordance with Section 144B(6)(viii). However, the provision cannot be read to mean that opportunity of personal hearing may be granted only where the assessee specifically requests for the same.
6. There is no warrant to interpret that the processual law prescribes that opportunity of personal hearing may not be granted by the Assessing Authority unless specifically requested for by the petitioner, in writing. To do that would be to give meaning to the word “request” used under Section 144B(6)(vii) and (viii), larger and much wider than intended by the legislature. Under the general Scheme of the Act, assessment orders are to be passed after giving opportunity to the assessee to present his case. To that extent, the revenue does not dispute the contention of the assessee and it does not claim a right to frame ex parte assessment orders. It contends, the opportunity for personal hearing is not inherent in the right to participate in the assessment proceedings. The assessee may participate in the assessment proceedings by furnishing his written reply. If however he seeks to avail opportunity of personal hearing, he may necessarily make a specific request, in that regard.
7. That may never be accepted. Assessment proceedings by very nature, often involve disputed question of facts and law. By merely submitting written explanations, facts and law may not become clear, on their own.
Both with respect to computation of taxable receipts as also with respect to expenditure incurred and allowances and exemptions claimed, facts and explanations thereto are not only required to be pleaded and noted but are necessary to be discussed. It is not uncommon that in the course of a judicial or quasi judicial proceeding the written document may be read in more than one way. That is also true of all explanations and replies. Also, language and writing are a mode of communication. They vary from person to person. Often same or similar thoughts are expressed differently by different persons depending upon their own skill and preferred use of expressions and method of writing. Therefore, what may be intended to be communicated by an assessee by submitting his written reply, may be received differently by the Assessing Officer on a simple ex parte reading of the same.
8. Therefore, for the purpose of an effective discussion to arise and a reasoned conclusion to be drawn thereafter by the Assessing Officer, oral hearing remains an important and near about mandatory requirement to be fulfilled to ensure both, the requirement to pass a just and proper judicial or quasi judicial order and also to preserve the faith in the adjudicatory authorities.
9. Seen from another perspective, if the assessee is to be taxed at a rate or at income higher than he has returned, he deserves to know the reasons for the same. The reasons may not be drawn ex parte i.e. on the strength of an ex parte opinion of the Assessing Officer. Rather, there must be recorded reasons to deal with the explanation that the assessee may have furnished to the tentative opinion of the Assessing Officer. Only after such reasons are drawn and recorded in the assessment order, the assessee may have opportunity to know the mind of the Assessing Officer. He may then make an informed decision to either accept the reasoning and pay up the tax or approach the appeal forum.
10. Here, we may also take note of an earlier amendment made to Section 251 of the Act whereby the power of the first appeal authority to “set aside” a defective assessment order and to remit the matter to the Assessing Officer, has been done away. At present, the first appeal authorities may either “confirm” or “reduce” or “enhance” or “annul” an assessment order. In absence of power to remit the matter to the assessing authority to make a fresh assessment, in the case of an ex parte order wrongly drawn on ex parte basis, the appeal power would remain seriously restricted. The appeal authority would be forced to entertain the appeal on all merit issues and exercise the powers of the Assessing Officer. While it is not in doubt that the appeal authority has all powers of Assessing Officer, at the same time, it is not the Scheme of the Act to require the job of the Assessing Authority to be routinely performed by the First Appeal Authority. If the opportunity of personal hearing is to be declined by the Assessing Officer by way of a normal practice, we foresee such situations are bound to arise in the normal course of things. In any case, the assessee would have lost one opportunity and tier of appeal, for no fault on its part.
11. Therefore, the word “request” used under Section 144B(6)(vii) and (viii) only imply, where an assessee may furnish his written reply to the show-cause notice but not opt to avail opportunity of personal hearing, it may not be mandatory for the Assessing Officer to grant such opportunity of personal hearing if he intends to accept the explanation furnished. He may pass appropriate ex-parte order accepting the explanation furnished by the assessee. If however, on reading the explanation furnished, the Assessing Officer maintains his tentative opinion to pass the assessment order as proposed, that may be adverse to the assessee, he would necessarily fix a date for personal hearing and communicate the same to the assessee, through electronic mode (as provided under the Act). Thereafter, it would be for the assessee to avail that opportunity. If the assessee fails to avail that opportunity, the Assessing Officer may proceed in accordance with law.”
5. In view of the above, present writ petition must succeed and is allowed. Accordingly, the order dated 22.03.2024 is set aside. The petitioner may treat that order as final show-cause notice and submit its reply thereto within a period of one week and not later. Thus, written reply, if any, may be filed by the petitioner by 13.05.2024. If the Assessing Officer is inclined to accept the explanation furnished by the assessee, in entirety, he may pass the consequential order without fixing any further date for hearing as the petitioner has not “requested” for the same. If however, he proposes to reject the explanation furnished by the petitioner, he would necessarily fix a date for hearing with at least 15 days prior notice. It may be communicated through prescribed mode. The petitioner undertakes to appear before the Assessing Authority in the manner prescribed on that date. Thereafter, assessment proceeding may be carried on and be completed in accordance with law.
Author Bio
